Partial Taking, Cost-to-Cure, and Relocation When Using Eminent Domain

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Partial-Taking,-Cost-to-CurHave you heard about the most recent eminent domain case in Nashville? The City of Nashville plans to take a portion of Greyhound’s bus terminal property for their Division Street Extension project with the use of eminent domain.

The City has offered to purchase the portion of property for $870,400. The area of the taking is a parking lot, which appears to include approximately 22 parking stalls with typical landscaping, sidewalks, and lighting. No structures are included in the taking. An article about the project can be found here.  The City’s project can be reviewed at: http://www.nashville.gov/Public-Works/Capital-Projects/Division-Street-Extension.aspx

This property taking offers good examples of the need to analyze each component of the eminent domain taking, both combined and individually. The criteria used in this example is based on the Federal Uniform Relocation Assistance and Real Property Acquisition Policy Act (URA).

Those components include:

  • The value of property taken
  • The damages to the remaining property
  • A cure for the damages
  • Relocation of the business occupant and landlord

Property Value
The property value will be determined by the real property appraiser who will likely consider the three methods of valuation. These include:

  • Comparison of recent sales
  • Replacement value (value of land plus cost to build improvements, including depreciation)
  • Value based on income (income as if the property were leased to a tenant)

Damages
The real property appraiser will also evaluate the damages, if any, that are caused to the remaining portion of the real property. Damages apply only to the real property and not to the business occupying the property. This may include the loss in the property’s value because of having inadequate parking after the taking. The owner is entitled to the value for damages, or, the cost to cure those damages, whichever is less. The amount would be included within the real property purchase offer.

Cost-to-Cure
A cost-to-cure consultant will analyze the damages and prepare possible designs and costs to solve, or cure, the damages to the remaining property.

In this particular case, let’s say the only cure is to construct an elevated parking structure on the remaining property to replace the lost parking. Let’s say it costs $500,000 to construct. The City’s offer to purchase would have to include $500K for damages or cost to cure in their purchase offer for the owner to build the structure without dipping into their own pockets. If that amount were not included in the offer, the property owner would have to argue for that amount with the use of the cost-to-cure documentation and the real property appraiser’s calculation of damages.

Relocation
The property owner (landlord) and the business occupant will be entitled to relocation benefits that may apply for moving personal property and reconfiguring their operations caused by the property taking as long as those items were not paid by the City as part of the cost to cure or elsewhere in the real property purchase.

Let’s say that Greyhound can no longer operate at this location with the loss of parking. This would entitle Greyhound to relocation benefits for moving to a replacement site. If the property is appraised as a non-special use property, relocation benefits would likely cover the costs to move, reinstall, substitute, or abandon personal property such as:

  • Seating, counters, computer systems, phone systems, paging systems, scheduling systems, and other items classified as personal property.

If the real property was appraised as a special use property—in other words, it’s a bus depot and cannot reasonably include another use—many of those items listed as personal property above may be valued with the real property because those items would normally be included in the purchase and sale of a bus depot. As a result, they would then not be eligible for relocation benefits. Instead, they would be valued as part of the real property, which means they may add value to the real property, but will include a depreciated value, or they may add no value with no actual payment for them. This is not a good scenario for the business when this or similar functioning personal property is needed at a replacement property.

For best results, the identification of personal property should be prepared through collaboration among the real property appraiser, a qualified relocation consultant, the tenant, and the property owner. Without this collaboration, chances are strong that someone, including the public agency, will lose and someone will be unjustly compensated.

Now let’s explore a notion and say that because of the nature of this business, it’s determined to be a utility facility. Included in the URA’s definition of a utility facility is any transportation system. The URA goes on to say that a utility facility may be privately, publicly, or cooperatively held. In my opinion, a bus depot should qualify as a transportation system and therefore should qualify as a utility facility within the regulations.

Utility facilities are eligible for relocation benefits in a significantly different manner than a business. According to the URA, relocating a utility facility includes, in part, the displacing public agency acquiring the necessary right of way on a new location, moving, and constructing the replacement facility that has the functional equivalency of the existing facility.

If this Utility Facility notion proves to be correct, Greyhound would be entitled to a new bus depot and property with no out of pocket costs.

Conclusion
In order to get the acquisition and relocation right, the condemning public agency, the property owner, and the tenant, must have qualified people to analyze the issues and facts, and prepare the necessary reports and documentation.

Because these situations are similar to any other buyer/seller scenarios, there is typically a team of specialists representing the public agency and another team representing the property owner and/or tenant. The people within each team need to work together to understand the facts and sort them into the proper categories as briefly described above.

Having the analysis performed by eminent domain experts is the best way for your team to prevail in an acquisition or relocation dispute.

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